The US dollar fell the most versus the Japanese Yen in 13 weeks. Why? Yellen and The Fed are keeping rates low until the economy can stand on its own two feet.
July 12 (Bloomberg) — The dollar fell the most versus the yen in 13 weeks as the Federal Reserve signaled willingness to keep borrowing costs at unprecedented lows even as the U.S. labor market improves.
Japan’s currency climbed against most of its 16 major peers and U.S. Treasuries gained as concern stress in Portugal’s banking sector may spread prompted demand for safer assets. The dollar fell versus most major counterparts after minutes of the Federal Open Market Committee’s June meeting failed to provide additional insight on the pace of rate increases. Central bank Chair Janet Yellen testifies before Congress July 15-16.
“Slightly dovish FOMC minutes was the first trigger,” said Masafumi Takada, a New York-based director at BNP Paribas SA. “Declining U.S. yields as well as ongoing geopolitical risk aversion are putting pressure on dollar-yen.”
The dollar fell 0.7 percent on the week to 101.30 yen in New York, the biggest drop since the period ended April 11. The U.S. currency weakened 0.1 percent to $1.3608 per euro. The yen rallied 0.6 percent to 137.90 per euro after appreciating to 137.50, the strongest since Feb. 6.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, fell 0.1 percent to 1,006.89, its fourth drop in five weeks.
The benchmark U.S. Treasury 10-year note yield touched 2.49 percent, the lowest level since June 2, and fell 12 basis points this week, the most since March 14.
Is the labor market really improving? Well, sort of. U6 (full and partial) unemployment still remains higher than anytime since the U6 measure was created. Real median household income is back to 1995 levels, and average hourly wage growth (YoY) is roughly half of what it was in June 2007.
The US dollar has been having that sinking feeling since early January.
Here is the option volatility surface for the EURUSD.
Here is the option volatility surface for the JPYUSD.
The US dollar looks like a grim remnant of its former self. Here is the purchasing power of the US dollar since the creation of The Federal Reserve System.